China's Li Keqiang Says Economy Still Needs Stimulus

German Chancellor Angela Merkel looks on as Chinese Premier Li Keqiang speaks during a joint news conference in Beijing.Reuters

China's economic growth has accelerated in the second quarter from the preceding three-month period, but reasonable government stimulus will still be needed, Premier Li Keqiang has said.

Li said the Chinese economy still faces downward pressures and that the Communist regime will increase its usage of "targeted measures" to boost growth in the world's second largest economy.

Speaking at a news conference with German Chancellor Angela Merkel, who is visiting Beijing, Li said his government will fine-tune policies further and expressed confidence that China's 2014 growth target of around 7.5% can be met.

He added that authorities do not plan any massive stimulus programmes.

The Chinese leader's remarks could boost market confidence ahead of the nation's second quarter economic report due out on 16 July. A Reuters poll of analysts has pegged second quarter growth at 7.4%.

"China's economic performance in the second quarter has improved from that in the first quarter. However, we cannot lower our guard against downward pressures," Li said.

"We will keep up our composure and not adopt strong stimulus. Instead, we will increase the strength of targeted measures," the premier added.

PBOC's Tools

Stuart McPhee, currency technical analyst at MarketPulse said in a note to clients: "China's central bank is seeking to support economic growth with unconventional tools that Credit Suisse Group and Everbright Securities say look more like fiscal policy.

"The People's Bank of China (PBOC) this year started a 100bn yuan ($16bn, £9.3bn, €11.8bn) quota for relending earmarked for agriculture and small businesses. It offered another 300bn yuan for low-income housing, China Business News said."

"Governor Zhou Xiaochuan is trying to carry out Communist Party orders to protect this year's 7.5% economic growth target without resorting to nationwide stimulus that stokes debt dangers. While selective tools such as relending can bypass riskier industries including property, JPMorgan says they lack transparency and contrast with the PBOC's efforts to shift to market- from state-directed credit," McPhee added.

Policy Impact

Earlier, Standard Chartered said in a note: "We forecast China GDP growth at 7.4% for 2014, followed by 7% for 2015 and 2016. We believe the impact of policy loosening will not be felt until year-end, leaving growth fairly soft through Q3 amid slowing monetary and credit growth."

"The government plans to implement targeted loosening measures should further growth concerns emerge, and the trajectory continues to be one of a soft landing towards a sustainable growth path.

"We do not expect discontinuities, either in terms of an economic hard landing or credit-market issues, and believe that much of the policy and regulatory uncertainty affecting China markets has already been fully priced in for the more China-sensitive commodities," the British firm added.

China's economic growth dropped to an 18-month low of 7.4% in the first quarter of 2014.